McKinsey's Susan Lund gives her take on the U.S. economy. WSJ reporters discuss the changes Congress will pursue on immigration and gun control. Plus: What's next for Hillary Clinton?

This transcript has been automatically generated and may not be 100% accurate.

the ... I ... he calmly takes its debt but what does it tells about the future ... welcome to siphon was one WSJ dot com on Jerry Sithe along with David Wessel ... we learned this week that the economy actually contracted slightly in the fourth quarter in large part because the government stop spending so much money ... was ever the need more have to be joined by Susan Lyne an economist and ... director of McKinsey global Institute ... thank you for being with us um ... this is a flow wasn't a harbinger of things to come but we learned ... I think it's more of a fluke ... when you look at what drove the decline it was two factors one was the steep drop in government spending mainly coming through military spending ... aam and that had to do possibly as much with contracting as anything else so ... we got a big boost in the third quarter GDP from military spending and a contract in the fourth quarter I think it's more of an accounting aberration ... the long-term tourer and ... on and then we also saw a drawdown of inventories ... that could reflect uncertainty on the part of business about how the fiscal cliff was gonna play out ... what in the next quarter we should see those inventories replenished ... now ... I don't wanna write off what happened to quickly the only thing it is important to keep in mind this was a sharp demonstration that when a somewhat weak private sector recovery ... government spending matters ... and if we were to get some of the SciQuest ration cuts ... coming in March ... it would shave ... Yelp several tenths of a percentage point off GDP growth ... and that the private sector while gaining steam and still a pretty slow recovery ... so we also saw that exports were pretty weak in the fourth quarter ... can we grow strongly if the rest of the world is not growing ... while it's gonna be more difficult so sixteen to seventy percent of U S GDP growth is driven by U S consumer spending ... um ... that said we need to rebalance the bed and exports have helped us in this recovery ... and you're right that they too could get mainly exports I think that reflects a lot of what's going on in Europe because Europe is ... one of our biggest trading partners and the weakness in Europe was seen not only in exports ... we also saw last year of over the years the hole that foreign company investment in the last dropped by thirty five percent ... today a large decrease ... aam there are several factors at play one is probably the situation in Europe because European companies are big investors here ... on the other credit again need the uncertainty about political gridlock and what's gonna happen ... with the fiscal situation of the country posted a little bit David right this week some about the uncertainty in Washington and if that lists what does that really the economy what's the potential for a ... spike if there's certainly a Washington and some these other forces ... that have been looking reasonably good continue to look that way ... I think that they are the health law barring on any fiscal disaster in Washington is ... positive for the U S economy not twenty thirteen will ... probably not see GDP growth as fast as we'd like but you do see improvement for instance the housing market ... aam you seen a pick up an automotive sales ... the job growth is continuing more slowly than we'd like but people are getting jobs ... when you look at household deleveraging in the process of paying down debt from the credit bubble ... American households have made good progress on that happening way out the next ... twelve to twenty four months all these things will gradually add momentum to the recovery ... on in the short term ... I'm not so cool to be on twenty thirteen when you look out over the rises you do it the McKinsey global Institute ... do you see good things for the U S economy bad things what are they ... while I ... I see challenges but also a ... big opportunity so one opportunity for instance in shale oil and gas and coal energy revolution ... aam were doing some more exciting what the impact that could be in it could be quite substantial bike twenty twenty ... not only in the production of hydrocarbons but the fact that the more substituting for imports ... that has a big effect on the trade balance ... aam part of always seen over this perception of the improvement ... in the U S trade deficit has come through the world oil imports in that trend is projected to continue ... and then you might know what happens the downstream industries like manufacturing ... our energy costs exactly so that's a positive now that's not to say the rest of the challengers ... um ... you know clearly that we're gonna unemployment problem we have a worker skill ... problem in the U I should be investing in worker retraining we have a growing number of people now been out of work for six months the year and longer in the longer you're out of work harder it is to get back into the workforce and that's the ... critical challenge ... on there also issues around the U S competitiveness ... on the U S has been one of the most business friendly countries ... in the world but what's happened in the last decade or more is that lots of other advanced economies have made big strides and things like ... infrastructure logistics and supply chain broadband access ... just ease of doing business and the last ... um has made much less pride in ... progress so relatively it were actually falling behind in the ... rankings of where companies wanted to boost its ... so let's go back to the tothe fourth-quarter yen yen in book one of those things it's in the way in which you talk about which lower spending too little or defense spending that that was true in the fourth quarter but it's not aberrational in the sense that we're now ... in barking here in Washington presumably on a ... phase in which that's going to be the norm ... reduced government spending at least discretionary spending and reduce defense spending so ... a long-term drag it or is it to something that people learn to live with what it will be a drag on the economy and reduce government spending at the new government spending as to GDP so will be a drag on the economy well with auto insurance that ... private consumption and business investment continues to be robust and strong enough to offset ... whatever spending cuts are coming ... and what policies he think would ... Quicken the reason for its help offset the contraction of us ... while I am not an end of the idea of getting in place a long-term ten year budget agreement that comprehensively address is your shoes of taxes and spending with this ... country but then in the short term ... embarking on a cut to invest program ... still building up taking this opportunity for instance with very low interest rates ... to build out some of the infrastructure gaps ... Jilin yesterday and worker retraining an education ... aam and and continuing to address that household debt issue both the through mortgages ... and refinancing as well as two lines are becoming an increasing ... issue for the next generation and their ... ability to purchase cars announces ... that this housing look you like it's now in place for can help hold for the economy of the ditch more broadly ... it slowly picking up steam so the long-term average us new housing starts are somewhere in the one point two to one point five million range ... they fell to about five hundred thousand for several years running we're now back up to over nine hundred thousand on an annualized basis new housing starts so we're claiming that the housing th ... I don't expect a quick rebound but I think it will continue to gain steam ... and it's important remember it's not just housing construction when people ... move into new houses there's all sorts of related spending on consumer durables and services that goes on so it is ... a surprisingly big engine of growth ... I don't think there will be rebound I think long term ... I will will climb back one of the interesting things about this perception ... is that it saw many adults with more and ... many more adults living together ... so you see it is June was a exiting college living with her parents to see it ... aam siblings living together so we have many more households in the U S with ... multiple adults can ... aam and by some estimates say there about two million fewer households formed over the last ... four or five years then you would've seen other one is temporary or long term especially the those people will tell you about the impropriety of the of ... I'll boost to the housing rental but for now it's it's kind of the absence of a housing was a big drag on the economy ... it's kind of going to neutral but that's of Conifer Palace to three percent growth ... next ... two years ... it'll be part of the story but it alone will not interrupt when I think it's a long-term question that that people wonder about my was ... further conversation the presidential campaign is is whether the country can find a way to break out of what is in long term ... a ... unit and twenty year long ... cycle of low growth Cunniff consistently chronically low growth ... it is the possible of this fact is you're talking about earlier the shale gas revolution of those enough to change the break that cycle ... it's possible I don't think it's inevitable when you look back until late nineteen nineties it was ... the last two really good economy enough on a sustainable basis that the US ... so you had the IQ revolution you had employment growth you had ... productivity growth that was coming with two new innovations that raised me ... rather than cost-cutting productivity gains that you've seen in this perception ... ALM so getting back to the innovation and dynamism of ... being the new technologies and products that lift demand and create jobs ... the positive stimulus effect I think it ... is possible I don't think it's inevitable I think that we need to focus on ... new business start ups ... are down twenty three percent since the recession ... table to a hundred fifty thousand fewer new businesses being created and she are ... still many businesses are bigger employment generator ... we need to focus on the competitive as a workforce skills ... but I do think that it's possible ... and still to head to look forward to see the US actually ... being really the most robust advanced economy ... and ... Susan that ... blasted to chew on will ... we do know for a long time hoping come back and join us to do it again ... by Tricia at a much thank you ... so Washington move beyond the economy this week to talk about a couple of emotional issues integration and guns will check in on those we joined Wall Street Journal's news meeting in progress coming up next ... Street Journal I get so much ... the new digital network from the Wall Street Journal is really a collection of channels are Jenkins ... Where ... featuring daily grind of the regional programs live and on demand ... no one has done anything like it ... I ... so ever since the election in ... the ... conversation underway about how this is going to be a historical and integration for this feels like the week in which we actually started to move down that path and maybe even found a little bit of common ground on the one ... I ... actually on a lot of common ground on Monday for Republicans and for Democrats in the Sandy Relief their framework for comprehensive immigration bill ... and acted very similar to what Brock Obama has long said he wants the next anti stay Pres Obama gave a speech on immigration release of the design principles again ... there are some differences and those will have to work out some of them will be difficult ... but everybody is growing in the same direction so I think that ... this to mean you seem to think the stars are aligned presentation this year have cause for optimism is part of a like for the few endeavors looking around to see what we were all it would release ... well on a sum get it right something's going on with that raises the question is ... if you opted to particular interest advocates want to see for Obama take a leadership role the whole day ... and yet if things are moving well enough without ... deceit intervene or heehee and that I think yes the balance that yes the strike he needs to be ... seen as an eighteen EC pushing the process along but if he gets up to five fronts ... and in this becomes an Obama Bell ... Alison you have all the in the unity in that good feeling in the sense that Republicans ... are driving this is well ... could go away ... with the flash points where is it with a difference is the Republicans and Democrats have this ... right ... the baking Bernstein's Moffett is one of the banking system ... how are they going to be all agree that people who are in the country legally now the eleven million of them ... deserve a path to citizenship a way to get ... that Rebekah American citizens but how long is that half of what has to happen for that happened ... when this entry work said was that ... day and first before you ever get on that path for free in a green card ... you that has to be border security put in place and so the ice and also a system to track people come into the country and these and make sure that the we is ... so the question is how stringent are those ... goals could be in how we can imagine then again who decided in order to secure ... the data more fancy no on email operational control the border which no one ever really knows what that means or is this sort of ... very easily measurable on iMac checks with what everyone will know it we've reached that would happen so that's ... that's one of the big questions that he is open and the use of smart questions for instance about eight ... pm lesbian couples will they be allowed to sponsor the partners for citizenship that's obviously question is ... really not about immigration is really about gay rights but it ... works its way into this debate ... you know the guy who really I thought ... that created the most base for this is probably marker Rubio is he one around to conservative audiences conservative talk show hosts and ... made the case for the comprehensive immigration reform what are the White House about this'll the bid and they pointed to reveal to learn is that that reveals position on this is his most significant and think about work or Boehringer ago when we're watching Republican debates where the cabinets were competing with one another to to come up with the stricter immigration policy for people ... prefer McCain talking about often ... alligators in boats and electrified fences and ... they never Mayo same day we can get behind some kind of comprehensive Kochan ... anything about Rubio is a heated but if any is not that much different than when John McCain is better when Lindsay can affect ... the key is it's pertinent to play when it's from him because he's ... somebody who isn't scarred by this past battles that is actually in really adored by ... by conservatives and Republicans ... more how ... important is this to Obama given that he promised immigration reform in into thousandeight campaign ... if he pulls this off he succeeds in this is a limited past presidents have Congress's ... how significant is this is a part of what is happening it's huge and I will be his failure he doesn't get especially given a were talking about here about how everything is lined up for it ... if he if it somehow this doesn't happen in that Baidu is why all the kids can hang back in the key for four years he heard Latino groups criticize him for what she pushing the something he's done now ... even though they agreed to make I say was that the finding that although don't think he's going to take the other thing is that you would have consequences and age ... it would be it would be a good time for ... Congress to actually be able to agree on something that I think it's awfully right and ... the most stunning thing to me about what we saw him on Monday with the Parpart Coopers is coming toward its bipartisan agreement on something and ... I'm the only ... speaking of the Cove deal way guns not so much not so much ... not summer's coming down this is that ... in the White House knows that they they know that this is going to be a top left ... hand at al Pressley be curious to see how much of Pres Obama put I now given given what that political reality is ... when we sign hearing this week ... I'm in the Senate on this issue where it was clear there is not complete our home in on gun control their sharp divide ... and I'm at the it's possible something will come through at the end of the day but ... on the fantasies of DNA know the nineteen point plan that the White House put out a ... common ground Susan have shrunk ... to the center is any common ground to basically let's have more rigorous background checks that you cannot read what should have guns as long as I get this is crazy ... you exactly and so and right now lot of the law to gun sales are not subject to Bacharach so there's been some conversation to say ... well ok let's ... let's have the background checks applied to agree a portion of the gun sales but then it is not here ... on the Peter Lynch does Joe Biden have invested in getting something done ... given that he's really looking towards twenty sixteen I think it's important point um what we've seen is the Biden is somebody who can negotiate with Republicans on Capitol Hill ... God the fiscal cliff for a resolution to that debate is support of his legacy now in second and help afford it the top job the reason why that will depend on where to look when those men who can talk about later ... but on Biden used developed a reputation as something McConnell was for somebody to ... the army ... of Goldman's from commissar Republican leader can talk to him and can go find common ground with and that something that to which Anusha lists a Bell Park Obama Laura knows having car covered in the first ... one to see the movie and McConnell this is the short movie ... I mean meanwhile there's no escaping the budget in Washington and that was true this week as well will talk about it when we come right back ... Street Journal I think so much ... the new digital network from the Wall Street Journal is really a collection of channels are package from where ... they traded daily grind of the regional programs live and on demand ... no one has done anything like it ... the ... so we're up affording the touchy subject here which is critical ... Delta IV guns integration that's easy ... budget we still can't agree on what to do about spending living speaking off the little that has been a success but ... it's gonna be on that March first outlined a bunch of automatic spending cuts come into effect people now are saying what she's going into the the recall robo call an automatic cuts right what happened is that they put off the spending cuts in response to take effect the first of January until ... March first ... the only way they can win even as Congress actually has to pass a bill to President The society ... and is the Republicans decide that they would rather let the spending cuts go into effect ... this could be very hard for the Democrats to force them to ... do something else ... ah the Democrats intend to the Republicans would want this to happen because it cuts defense pretty strongly ... but it's hard to tell whether the Republicans are just ... bargaining position or what but that seems the most likely course when one of these the things that we were dreading two months ago could take offense or walk ... for awhile not the whole year probably ... due to my Aprilia mean maybe that there's ... him when they actually do appropriation bills are some trade offs it's ... the best way but the throttle not around ... next week to potential buyers shop ... for gifts to projections the deficit ... Paul Ryan's budget office's budget house but she's promised to balance the budget in ten years about raising taxes ... will be extinct ... the president has to have to come out with his budget get the across the board spending cuts in the beginning of March ... they never runs out of funding authority at the end of ... March so its full one but two quarters ... it isn't there or is there some to be said though performers often these problems over a longer prison time I mean we are looking to truly kicking but this is the definition of kicking the can down the road to Mt remarked on what system for business at the ... cost of softening me ... I've been around so long I remember when they were saying doing annual budgets was disruptive we ought to have a two year ... now we can even get a form of ... evidence that the prom on the other end is that the real problems aren't in the next ten years there in the next twenty or thirty years so everybody's fighting about ... the next ten years is if that's the real problem it's money that's the beginning of trial would be good to do with the next ten years ago from it and not even doing tonight dealing with ... Medicare Medicaid social Security ... this is been no appetite for doing the long term ... so that that is the yet the whole idea of a grand bargain that everyone kind of made me they didn't actually get to visit us ... and ... Denzel strong but I'll give a very low odds with ... the whole point of doing these things incrementally to do something with the fiscal cliff deal ... it was said ... is that it builds trust among the parties ... but certain where I don't see any at a time when the president or ... our speaker brainer any rest and to get back into some negotiation ... so if I were another milestone this week to a climb in her time Secretary State going out more popular then she came in which is hard to walk and she's the she's going out with personal care bill the remains of the high fifties aam she is she's clearly obvious him or herself as a ... separate state to as help to ... improve ... America's image abroad ... the key question now on but a guessing game again is with your wall watching cushy job in the aam ... two thousand sixteen Democratic presidential race and their supporters would love to do if they're waiting for waiting in the wings to earth ... your possession committees and there are donors and there are on our two groups to stifle the monitor on ... that she says she's tired she had a health scare ... so it's really not clear at this point ... and I would be surprised if she really has made up for mine I mean ... did he ask me today I'd say she's gonna run depression can be too much but who can know that ... in ... two weeks after the two things one a half weeks after the first after the blast inaugural I didn't that they did I'd I'd had it easy watching how people sort of our ... are correct but said ... she needs to make a decision and we really are just ... just a ... few months from Alaska level than any she does have a little bit of time to think this through shares in a spot for the day she deserves the spot agree that the Commission wants to see that ... live coverage ... we venerate could probably be ... martial reporter for us but ... she has long time and one reason just on ... the Shias or station where she has support in your with Congress this and I went after ... she has a fund raising network chose to build up its craft beer waiting for and ninety eight ... or nine percent name and the kitchen which matters a lot so ... well next week will be turning toward the Pres Obama news Big stated Union address we are back on side the muscle and hope you can join is then ... the tiny can join the conversation on Twitter at hashtag WS J live ... on Jerry Sithe ...